At what stage of the financial lifecycle are you?
The financial life cycle consists of five stages which coincide with the standard progress of people’s life. Each stage has different priorities and different products that are suitable for the individual investor to use.
The main stages we recognize are:
- Young Professional
- Young family
- Children have left the house
Protection products vs investing
The generally accepted financial planning theory is that the first item of financial products people should buy is protection. Protection products such as health insurance, disability insurance and life insurance all come under this category. These products prevent a problem with your health or ability to earn income from becoming a total disaster. Ignore protection products and you leave yourself open to risks such as huge medical bills, losing the ability to provide for your family and/or having to rely on social benefits, family or friends.
As a young professional the protection product are cheap to obtain as the risks are low. Once the protection products are in place your next step would be to start a regular saving plan for long term goals such as your retirement. Time is your best friend when it comes to saving for retirement for two reasons; the sooner you start saving the lower your contribution amount will need to be and the lower the risks will be.
Most people will start a family at some point in time. This means more responsibility for you and your partner to look after the children’s wellbeing. If you haven’t already arranged your protection products do so now and review them on a regular basis to make sure that the level of coverage is still sufficient.
In general children are expensive by nature, but the single most expensive item related to children is their education. The best decision parents can make for the future is to start a saving plan as soon as they can. Even a small amount saved on a regular basis can turn into a respectable sum of money over time. This education fund will be vital in providing liquidity and cash flow when the children do start university so that you don’t have to change your lifestyle.
Once the children have left the house, are educated and living independent from you and your partner it is time to intensify your focus on retirement planning and direct all available saving-capacity towards this target. The protection products can be scaled down as there is less need to protect your family, hopefully you have reduced or paid off you loans and you have accumulated personal savings.
In retirement the main financial products to use are related to asset management on your savings to make sure that the income and risks are under control. Later down in retirement it is wise to consider how you are going to pass down your assets to your children. Thinking ahead and discussing this with a lawyer and financial adviser in advance can save a lot of hassle, costs and stress for everybody.
Whatever stage of the financial life cycle you are in it is vital that you have somebody who can help you with advice and suitable products. Shoreline is that partner and we look forward to working with you every step of the way.